Sat, Feb 25, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Private Equity Strategies

Data Snapshot: Private Equity and Pension Funds Go Steady

Monday, April 29, 2013

By: Bailey McCann, Private Equity Strategies

In our last issue, we discussed the potential impact of institutional divestment around hot button issues like guns and climate change. In that piece, data showed that even if institutions like public pension funds are seeing returns from controversial investments, stigma around those investments and/or pending legislation, may in of itself prompt divestment even without a public outcry.

Now, the Private Equity Growth Capital Council (PEGCC), has released a new whitepaper detailing just how intertwined public pensions are with private equity and what that will mean for the industry. The report highlights the significant amount of capital pension funds commit to private equity and the financial gains they receive from the outperformance of these investments.

Despite losses from other investment strategies during the Great Recession, one bright spot for pensions is the superior performance of private equity funds, which helped buoy overall pension returns. The PEGCC research found that the median public pension portfolio received 8.8% in returns from private equity, compared to 3.7% in public equity and 5.7% in total portfolio returns, annually over the past ten years.

Overall, 60% of the funding available in pension funds comes from returns on investment – setting up a high-pressure situation for the directors of those funds when investments fail to return. The long-term structure of private equity investments can provide a buffer from episodic market corrections, but lengthy recessions like 2008 can depress returns.

Private equity too relies on investments from pension funds. Data in the paper shows that investments from public pensions account for 43% of all invested capital in private equity. According to the PEGCC, pensions are "essential to the private equity industry, just as private equity’s superior returns are vital to the financial health of pension funds."

"Without private equity returns, public pension plans across the country would incur greater unfunded liability, possibly resulting in higher pension contributions by employees and a spike in taxes paid by local residents," Bailey concluded.

 
This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies


Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Legal - Fannie, Freddie shares dive after U.S. appeals court ruling[more]

    From Reuters.com: Shares of Fannie Mae and Freddie Mac tumbled more than 30 percent on Tuesday after a U.S. appeals court shut down efforts by hedge funds and other investors to pursue numerous legal claims accusing the U.S. government of seizing their profits following taxpayer bailouts. By a

  2. Institutional investors plan to raise allocations to alternative assets in 2017[more]

    Komfie Manalo, Opalesque Asia: A survey by Context Summits Miami showed that nearly 72% of institutional investors and family offices plan to raise their allocations to alternative asset managers this year, suggesting continued strong demand for the industry. "As many large, brand name f

  3. Comment - Mortgages, mergers and hedge fund fees, Fairholme's Berkowitz responds to court ruling against hedge fund suits of Fannie Mae[more]

    Mortgages, mergers and hedge fund fees From Bloomberg.com: Yesterday the U.S. Court of Appeals for the D.C. Circuit handed down an odd decision in a lawsuit over the government's nationalization of Fannie Mae and Freddie Mac. The key issue is what's called the "Third Amendment," the 2012

  4. Investing - Hedge funds continue to chase the herd in record Momentum wager, Marshall Wace bets grocer Sainsbury may need rights offering, Hedge fund net exposure has started to retreat, David Tepper's Appaloosa fund makes a huge buy, The 10,000-mile journey to Short Australia, Skeptical hedge fund investors grill Evan Spiegel about Snap's I.P.O.[more]

    Hedge funds continue to chase the herd in record Momentum wager From Bloomberg.com: Hedge funds can't get enough of momentum - even if it means embracing an investing strategy they hate. Loosely defined as betting on shares that went up the fastest over the preceding nine-to-12 months, h

  5. Opalesque Exclusive: Swiss investors take fund seeding and acceleration into their own hands[more]

    Benedicte Gravrand, Opalesque Geneva: Banque Bonhote, a 200-year old Swiss private bank, last year launched a community of investors - heads of Swiss family and advisory offices and wealth managers - with the aim of co-investing in the kind of managers they wanted to invest in, either by way of s